Concerns raised over windfall tax for renewables

4C Offshore | Tom Russell
By: 17/11/2022 gov uk

The UK's Chancellor of the Exchequer Jeremy Hunt has unveiled changes to the Energy Profits Levy which he stated is aimed to target businesses making extraordinary profits as a result of high energy prices.

From 1 January 2023 the Energy Profits Levy on oil and gas companies will increase from 25% to 35%, with the levy remaining in place until the end of March 2028, and a new, temporary 45% levy will be introduced for electricity generators. Together these taxes are expected to raise £14 billion next year.


In his speech, the Chancellor hailed Britain as a global leader in renewable energy. He said: "Last year nearly 40% of our electricity came from offshore wind, solar and other renewable sources.

"Since 2010, our renewable energy production grew faster than any other large country in Europe.

"We need to go further, with a major acceleration of home-grown technologies like offshore wind, carbon capture and storage, and, above all, nuclear."


The amendments to the Energy Profits Levy for renewables have been met with mixed reactions with concerns been raised over future investments for renewables.
RenewableUK's CEO Dan Mc Grail said: "This windfall tax on low carbon power risks deterring investment, at a time when the Chancellor should be incentivising clean energy. Unlike in oil and gas, under this levy companies which are making significant investments in renewables will get no tax relief and will be hit by a higher windfall rate.

"Any new tax should have focussed on large, unexpected windfalls right across the energy sector, instead profits at fossil fuel plants are inexplicably exempted from the levy. Many renewable generators are on long-term, fixed price contracts and most other sold their power for this winter over a year ago, so they haven't been making excess profits.

“We need to attract more than £175bn in new wind farms and our supply chain over the course of this decade, so we need to make the UK one of the most attractive destinations for private investment in renewables. Ministers now need to work with the industry to ensure that the implementation of these plans ensures a level playing-field, rather than imposing unfair burdens on renewables.  

"As we look ahead to next winter, we need the Government to implement our proposals for new power contracts that would cut costs for consumers and provide long-term certainty for investors. The current support mechanism for renewables, Contracts for Difference, is delivering new power cheaper than any other system, so it's the right model to focus on as we move forward”.  
 

Frank Gordon, Director of Policy at the Association for Renewable Energy and Clean Technology (REA), said: “While the REA and its members recognise the immense economic challenges facing this country, we would question the wisdom of subjecting the cheaper, greener renewable power sector to a more punishing tax system than its oil and gas counterparts.


“We note the exemption for smaller sites, but I would strongly urge the Government to fix this disparity as there is a strong need for tax relief for low carbon investments to help stabilise energy prices and offer long-term energy security. This is crucial for getting investments in renewables moving again following the pause that resulted from the last few months of political and policy uncertainty.


“The added investment into energy efficiency is a welcome move, but action needs to be taken immediately. Additionally, more technologies, such as energy storage, need to be included under the Energy Saving Materials list which provides VAT exemptions.


“Finally, while we expected a change to Vehicle Excise Duty exemptions for electric vehicles, the Government needs to make sure that they are not disincentivising the transition for vans, in particular. It also must be ensured that financial incentives remain in place for the move to such vehicles in light of recent charging price rises and the withdrawal of grants for electric car purchases.


“Overall, there are a lot of outstanding questions from our sector that need to be answered by the Government.”